The price of progress

Minot links spending to growth

November 7, 2013

Minot's growth has spurred construction of better streets, expanded airport facilities and more water and sewer mains.

The growth is hitting the city in the pocketbook, as evidenced on Monday when the Minot City Council approved $37 million in new bonded debt to pay for highways, water and sewer, airport and other infrastructure projects.

Although the amount is much higher than the city's normal borrowing, city finance director Cindy Hemphill said the debt would be greater if not for oil impact dollars that covered some of the cost.

Minot has received $2.25 million in oil impact money. Minot also began receiving a percentage of oil production tax in September. The first of the monthly receipts totaled about $431,000, Hemphill said.

The City of Minot also has used sales taxes to pay a certain amount of its debts in the past. Airport revenues are expected to cover much of the cost that the city is incurring with expansion of facilities there. Water and sewer bonds typically are paid off through rate fees.

City manager David Waind told the city council Monday that Minot has gone from having one of the lowest utility rates among major cities in the state to one of the highest.

A typical monthly, residential water-only bill in Minot is $37.87, the second highest among cities of 5,000 or more population in North Dakota, according to the 2013 AE2S Nexus North Central Region Utility Rate Survey. The survey is published annually by AE2S Nexus, Grand Forks. It assumes typical monthly use of 6,000 gallons and comes with the caveat that water treatment costs can vary among cities depending on the water source. Monthly rates in the 2013 survey range from $23.95 in Bismarck to $40.47 in Grafton.

Information obtained from the cities of Fargo, Grand Forks, Bismarck and Williston also shows lower overall utility bills compared to Minot for similar water, sewer and garbage use, even though the other cities tack on additional fees for purposes such as mosquito control or street lights.

Minot's utilities rate increased 22 percent this year and is scheduled to increase about 6 percent in 2014.

"It's just brought about primarily because there's such a tremendous amount of debt we are taking on," Waind said.

He said the city's upfront costs in sewer trunks and water mains end up being carried as debt by residents until taxes can be collected later as development occurs.

"In other parts of the country where there's rapid growth, the communities have responded with something called impact fees," Waind said. "North Dakota doesn't allow impact fees."

Some western North Dakota communities have been talking with legislators about allowing them to charge upfront impact fees on developers. Another way that oil-impacted communities would like the state to help is by taking on the debt of major infrastructure construction. Waind said Wyoming has assisted its communities in that way.

Jim Hatlelid, Minot City Council president, said the oil-impacted communities can't continue to incur increasing debt.

"We need to find a better way to pay for some of this," he said. "Unless we get some relief from the Legislature in some fashion, we are all going to reach the point where we can't finance anything."

Waind said Minot benefited in the last legislative session from appropriations for its airport improvements and from oil impact and flood aid.

"Whatever we have gotten has been very much appreciated," he said. "But there are bigger impacts to this community than have been recognized to date, in our view."

The city is estimating a service population of about 50,000 people, which includes Minot's permanent residents and temporary workers in the community. That's up from the 2000 census of 36,567 and 2010 census of 40,888.

Much of that growth is energy-related and comes at a time when Minot is having to redirect resources to flood recovery and protection, Waind said.

"We don't have the flexibility that we once had because of costs of the flood," he said.

The city's five-year capital improvements plan includes $278 million in projects. Waind said the city scheduled about $125 million in projects for this year, although some were delayed due to weather or insufficient funding.

Minot's outstanding debt in 2012, which included general obligation bonds, special assessment bonds, revenue bonds and other notes payable, came to $39 million in 2012, or about $976 per capita, according to the city's annual financial report.

In 2012, the city carried nearly $8.4 million in general bond obligations. After subtracting cash available, the net general obligation put a burden per capita of nearly $193 on residents. Hemphill said the burden is increasing to $306 per capita in 2013.

To put the debt load in perspective, the net general bonded debt in 2009 was $275.92 per capita, which was the previous 10-year high.

The total general debt obligation on Minot property-tax payers in 2012 from city, county and school was $26.9 million, according to the city's financial statement.

Council member Kevin Connole said there's always a level of risk in taking on debt in anticipation of future development.

"I am nervous about it," he said. "We have always been very conservative and we still must be conservative. But if we have to pay for some of this growth and hope we can get it on the back end in 10 years we are going to have to do it now while the bonds are cheap. That's the best thing we have going for us is a good (credit) rating and cheap bonds."

Council member Blake Krabseth said the council is being careful even though thae outlook for energy activity indicates that Minot's growth will continue.

"We still have to be smart about what we do," he said. "We are aware of what's happening, and we are doing the best we can to manage it."

Once major infrastructure improvements are in place, Minot will see its expenses stabilize and will benefit as new tax revenue is generated, Waind said. Studies show residential development comes close to recouping the cost of infrastructure built to support them, while commercial development exceeds those expenses, he said.

"It will be very good for the community to see that kind of development," he said. "As time goes on, even on a property-tax basis, growth will eventually catch up and pay for itself."